Advancement Granted Without Use of Exact Word in Agreement

Fillip v. Centerstone Linen Services, LLC, C.A. No.8712-VCG (Del. Ch. Feb. 27, 2014).

Why is this notable: This Chancery decision upheld the Final Report of the Master in Chancery which found that the terms of an LLC agreement supported advancement even though the exact word “advancement” was not used in the agreement. Many other important contract interpretation principles supported the conclusion. This letter opinion is necessary reading for those who are interested in the Delaware law of advancement, and why such a claim often is a long and difficult struggle despite what, in many cases, is a straightforward obligation. The money quote from this ruling exemplifies the point:

It is far from uncommon that an entity finds it useful to offer broad advancement rights when encouraging an employee to enter a contract, and then finds it financially unpalatable, even morally repugnant, to perform that contract once it alleges wrongdoing against the employee. For the foregoing reasons, I find that Article 3.7 of the LLC Agreement mandates advancement of expenses, including costs, incurred by any Centerstone Manager or Officer by reason of his position as officer or manager.

 Supplement: Insightful commentary on the analysis of the agreement in this case is provided by Ken Adams on his blog called Adams on Contract Drafting, as he explains the importance of the second sentence in the relevant paragraph in this case as a means of interpreting the first sentence.